Using Philosophical and Economic analysis to consider big questions, world issues and matters of everyday life!

Friday, 3 January 2014

Don't Nationalise The Rail Industry!

If
you're a Brit reading this, it's a pretty safe bet to say you'd hate to see the
NHS privatised, wouldn't you? I know what you mean - it's a wonderful thing,
isn't it - national insurance contributions making health service free at the
point of delivery. Although personally I wouldn't want to see it privatised
in one foul swoop just yet, there aren’t many things I want to see remain in the hands of the
government.

You see,
in net terms even the health service would be more efficient if it were
privatised (take Singapore's
health service as the nearest case in point) with people able to keep their
money instead of paying it in NI contributions. The NHS costs are so high
primarily because it is so inefficiently used - and the reason it is so
inefficiently used is because it’s free at the point of delivery, so there's no
financial incentive to minimise one's health and well-being. To give you an
illustration, imagine the government nationalised all food and asked us all to
only eat what we needed - we'd be a nation of severe overeaters (we are
already, and that's when we pay for our food). That said, despite the health
service ideal, where incentives are locked in place, we just don't have the
collective wherewithal to optimise this model, which is why I favour a
State-funded NHS.

In just
about every other instance in the UK, in just about every decade,
privatisation has proved far more efficient for the economy and for the
taxpayer than services run by the government, or services too heavily
subsidised – and that’s an almost ineluctable law in economics. The reasons are
standard textbook stuff.Privatised
companies have a much greater incentive than government-run companies to spend
efficiently and reduce profligacy. Not only are governments wasteful (people
generally spend other people's money more carelessly than their own) - they do
business in accordance with party politics and political pressures from the
electorate, as well as subsiding or bailing out failing industries.
Furthermore, investment in the rail industry is more proficient when
governments aid private companies rather than running it themselves, as
economic management that extends long-term is not always good for point-scoring
in general elections.

Shareholders
are good agents for profit-inducement, which means you usually get better
managers in the private sector. Where there is inefficiency, the best recourse
is a takeover or switching to competing forces, not State bailouts which are so
often inefficient, party-based and largely ideology-driven.

But most
of all, increase in competition is proven to be the greatest catalyst for
efficiency and improved services. Competition is hard in the rail industry
(even these regional franchises don't entirely guard against monopoly power) -
but the government needs to do more to engender competition, not take steps
backwards to the old days of nationalisation.

Lastly,
profits make for a tiny proportion of the rail industry's investors - for
example, staff costs alone are about 25% compared with 3-5% profits. The
politicians in favour of nationalisation fail at basic rationality when they
allude to a public sector profit in one region as evidence for greater efficiency
than the private sector in other regions (that’s as injudicious as saying that
all restaurants should be nationalised because city hall’s restaurant makes
more profit for local government than privately owned restaurants in the nearby
high street). And they fail at basic arithmetic when they count railway labour
costs (always the headline-grabbing ‘jobs’) as part of the benefits rather than
part of the costs. Those 25% staff costs are borne by the taxpayer in public
sectors and by the company in private sectors - but it doesn’t end there – not
only are they costs that are only borne by nationalisation – with government
expenditure we have to include pension contributions, sick pay, holiday pay,
human resources costs, and so forth that aren't factored into the balance
sheet, they are costs that carry on through all employees’ working life and
henceforth thereafter – and it is either disingenuous or plain incompetent to
omit them from the enquiry.

No,
while nationalisation has the occasional success story - this usually occurs
when the State has come in to take over from a failing private sector firm (and
please note: a bad private firm does not logically necessitate a slightly
better public sector agent, it necessitates a much better private firm) – history
has continually shown that it is not to be preferred to the much more efficient
market of competition, enterprise and diversity.

About Me

This is the Blog of James Knight - a keen philosophical commentator on many subjects.
My primary areas of interest are: philosophy, economics, politics, mathematics, physics, biology, chemistry, theology, psychology, history, the arts and social commentary.
I also contribute articles to the Adam Smith Institute and the Institute of Economics Affairs.
Hope you enjoy this blog! Always happy to hear from old friends and new!
Email:j.knight423@btinternet.com